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Cable Operators

Cox Steps on Gas With VOD

2/13/2005 7:00 PM Eastern

While most MSOs, at least those with the financial wherewithal, have flung themselves deeply into video on demand, Cox Communications Inc. has taken a more cautious approach.

It was only late last year that the MSO launched premium subscription VOD in a number of its larger markets. And although it’s launched VOD in nine markets, it still has not launched the service in Phoenix and northern Virginia.

At the same time, Cox pioneered long-form VOD advertising with its FreeZone product in San Diego over three years ago. Last month, it announced plans to rollout that service in its other eight VOD markets: Orange County, Calif.; Las Vegas; New Orleans; Oklahoma City; Omaha, Neb.; Hampton Roads, Va.; and its systems in Rhode Island and Connecticut.

“We clearly have not been as aggressive as the other MSOs,” said David Pugliese, vice president, product marketing and management at Cox. “We have been really focused on perfecting the model before we have widespread rollouts.”

Cox now has launched its “Everything on Demand” service to half its subscriber base. Late last year, it added HBO On Demand, Cinemax On Demand and Starz! On Demand. “That is a much more robust offering for consumers,” Pugliese said. He added that Cox continues to look at other content, including “free” content, to add to its VOD system. “2005 is the year for us step on the gas to make the service more robust.”

One reason for Cox’s slower rollout of VOD is that it’s taken a hard look at the costs involved and the likely return. Few may remember, but Cox was hammered by some on Wall Street for entering the local telephony market with expensive circuit-switched gear in the late 1990s. “Where is the return?” Wall Street wanted to know.

Now, of course, Cox’s telephony-bundle is a darling on Wall Street, but the same cost/benefit analysis still rings true for VOD. Pugliese said when Cox considers launching VOD in a given market, it asks whether the incremental cost is the best use of its money. “Or should we launch two to three other phone markets?” he asked rhetorically. “It’s kind of a portfolio-management issue. What is the best use of capital? Right now, we’re trying to measure this. What are the key metrics to justify that investment? Are we seeing signs of reduction in customer churn, digital churn, pay churn?”

With SVOD launching only late last year, “we don’t have enough data,” Pugliese said. But in its eight VOD markets, Cox plans to make its on-demand offering “as robust as possible,” he added.

“The fact we can offer HBO and Starz! on an EOD [Everything on Demand] basis is a great differentiator from satellite,” he said. Pugliese also said Cox is planning to add free content. “We’re looking at everything that’s out there.”

Cox uses its own interactive program guide for VOD. “We’ve focused on intuitive navigation systems with a user-friendly interface,” he said. “The subscribers that are using the EOD product are in strong agreement that it adds value to digital cable. The satisfaction is very high.”

Cox expanded the rollout of FreeZone, which Pugliese said was successful with both advertisers and subscribers. “We’ve been pleased with the results.”

The somewhat slower rollout of VOD means Cox has markets where it has launched digital video recorder service, but not VOD. But Pugliese said both can, and will, co-exist. “We have been very aggressive in DVR,” he said. “It’s pretty much everywhere. EOD and DVR do easily co-exist in the consumer household. DVR is a more lean-forward experience,” he said. EOD is geared for consumers who don’t want to think about what they need to record and would rather sit and see what’s available from a menu of choices, he added.

On the hardware side, Cox has both Motorola Corp. and Scientific-Atlanta Inc. systems and VOD servers from SeaChange International Inc. and Concurrent Computer Corp., and software from N2 Broadband. The VOD topology is fairly typical of other operators, with centralized storage, some cached storage at the edge and Gigabit Ethernet transport from headend to hub.

“We built for 10% simultaneous usage at the QAM [quadrature amplitude modulation],” said Michael Pasquinilli, director of ITV technology at Cox. That translates to 80 streams going through 8 QAMs for 800 digital subscribers. “We successfully implemented that architecture in San Diego last year with Concurrent,” he said. “We created new algorithms. It’s worked really, really well.”

Cox is upgrading its video storage capacity from 800 hours to 6,000 hours, in some cases, but has no immediate plans to offer that much content, executives said. Although separating streaming from storage has become the new mantra in VOD, Pasquinilli said that “there has to be a good reason for it.” Splitting parts that increase costs only works if significant gains are made, he said.

Cox can add storage to its current SeaChange and Concurrent servers. “And the truth with VOD, [is that] every stream requires a certain amount of storage.”

Pasquinilli said Cox Media uses Everstream Inc. to collect data on the advertising usage, and the MSO has an RFP out for data collection on the subscriber side. Once that data rolls in, Cox will have a better idea about the cost/benefit analysis of VOD.

September